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Effects You Ought to Know for Business Improvement
Butterfly Effect

The butterfly effect refers to a concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science. 

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a hurricane (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier. Lorenz discovered the effect when he observed that runs of his weather model with initial condition data that was rounded in a seemingly inconsequential manner would fail to reproduce the results of runs with the unrounded initial condition data. A very small change in initial conditions had created a significantly different outcome. 

The idea, that small causes may have large effects in general and in weather specifically, was used from Henri Poincaré to Norbert Wiener. Edward Lorenz's work developed the concept of instability of the atmosphere to a quantitative foundation and linked the concept to the properties of large classes of systems undergoing nonlinear dynamics and deterministic chaos theory. 

The butterfly effect is exhibited by very simple systems. For example, the randomness of the outcomes of throwing dice depends on this characteristic to amplify small differences in initial conditions—the precise direction, thrust, and orientation of the throw—into significantly different dice paths and outcomes, which makes it virtually impossible to throw dice exactly the same way twice.

In simpler term, a butterfly flap in the desert may result in a hurricane in the city. In my next blog post I will talk in detail how this is a significant effect on the economy because of a small hype or speculation.

Crocodile Effect

A crocodile bite force have measured to be 3,700 pounds per square inch (psi), or 16,460 newtons. By contrast, you might tear into a steak with 150 to 200 psi (890 newtons).

The theory behind this is when you encounter something that is so bad and inevitable, just like you get randomly bitten by a crocodile, know what to be sacrificed. If the crocodile bite your leg, do not use your hands trying to free it. If the crocodile bite your hand, do not use the other hand to try free it either. This goes the same for all your limbs.

When you try to free your limb with another limb, the crocodile may attack your another limb causing you to lose both. If the crocodile advances, you may even lose your life. This depicts in a difficult financial situation or trading lost, accept it and do not sink further. It is better to lose a small fortune than your entire savings.

Chinese have a saying 留得青山在,不怕没柴烧, it means where there is life, there is hope. Preserve your forest so you have the logs for winter fire. Preserve your bullets to fight another time.

Catfish Effect

The catfish effect is the effect that a strong competitor has in causing the weak to better themselves.Actions done to actively apply this effect (for example, by the human resource department) in an organisation, are termed catfish management. 

In Norway, live sardines are several times more expensive than frozen ones, and are valued for better texture and flavor. It was said that only one ship could bring live sardine home, and the ship master kept his method a secret. After he died, people found that there was one catfish in the tank. The catfish keeps swimming, and the sardines try to avoid this predator. This increased level of activity keeps the sardines active instead of becoming sedentary. (According to Vince from Catfish the Movie) 

In human resource management, this is a method used to motivate a team so that each member feels strong competition, thus keeping up the competitiveness of the whole team.

In olden days, fishes are caught and left dead with ice to preserve it from decaying because the standard of living is poor and people just want to be fed without concern about the quality. As time improve, consumer prefer fresher fish and this is when the ship upgrade with a water tank to keep the fish alive. An fish enthusiast will know fishes do not accommodate to another water environment easily.

This is where the catfish is put into place, as long as the fishes are actively swimming with healthy oxygen level and muscle movement, they are as fresh as live from the ocean.

2 important lesson from this effect - competition and constant upgrade to meet the demand.

Herd Mentality

Herd mentality, or mob mentality, describes how people are influenced by their peers to adopt certain behaviours, follow trends, and/or purchase items. Examples of the herd mentality include stock market trends, superstition and home decor. Social psychologists study the related topics of group intelligence, crowd wisdom, and decentralised decision making.

This can be applied to both market demands and sales tactic. For example, look at all the weird fashion sense where everyone is applying to themselves. If you do not apply it, you become the weird one instead. To move the consumer, marketing is the key to success, with the use of celebrities and marketing hype.

In sales aspect, a client can be self-convinced by questions like "why you people around your age always buy this product" or "can you explain why this product is so widely adopted by your gender"? Not only they will find reason for them to make the purchase but you may also learn something new.

Hedgehog's Dilemma

The hedgehog's dilemma, or sometimes the porcupine dilemma, is a metaphor about the challenges of human intimacy. It describes a situation in which a group of hedgehogs all seek to become close to one another in order to share heat during cold weather. They must remain apart, however, as they cannot avoid hurting one another with their sharp spines. Though they all share the intention of a close reciprocal relationship, this may not occur, for reasons they cannot avoid.  

Both Arthur Schopenhauer and Sigmund Freud have used this situation to describe what they feel is the state of the individual in relation to others in society. The hedgehog's dilemma suggests that despite goodwill, human intimacy cannot occur without substantial mutual harm, and what results is cautious behaviour and weak relationships. With the hedgehog's dilemma, one is recommended to use moderation in affairs with others both because of self-interest, as well as out of consideration for others. The hedgehog's dilemma is used to explain introversion and isolationism.

Too close you get pierced, too far you cannot keep yourselves warm.

There is no way to satisfy the market condition especially it is impossible to know everyone trading in the market. In trading we always find the pivoting point that will balance the both ends. You can never catch the right entry point or exit perfectly, you need to know what is the comfort zone to make things happen - but never stay in the comfort zone.

Wrist Watch Effect

It will be easy to tell the time when we wear a watch on our wrist. Either way, the time will be slightly faster or slower because watches will lose its synchronisation over time - unless you are talking about atomic clock that never lose its sync. It does not really matter if the time you are seeing is accurate to its very second unless you are in the military.

Now, try a few wrist watch on your wrist and try to tell the time again. This time it will not be watch to be inaccurate but yourself. It will take a few seconds to think which watch to see, another few seconds to compare and last few seconds to think why the timing between the watches are not aligned.

This is what happen when instructions are not given through a single point of contact, confusion ensued. Focus on a single point and know your source. Do not believe in every news and do not watch all news at once and try to find a singularity.

Broken Window Theory

The broken windows theory is a criminological theory of the norm-setting and signalling effect of urban disorder and vandalism on additional crime and anti-social behaviour. The theory states that maintaining and monitoring urban environments to prevent small crimes such as vandalism, public drinking, and toll-jumping helps to create an atmosphere of order and lawfulness, thereby preventing more serious crimes from happening. 

The theory was introduced in a 1982 article by social scientists James Q. Wilson and George L. Kelling. Since then it has been subject to great debate both within the social sciences and the public sphere. The theory has been used as a motivation for several reforms in criminal policy, including the controversial mass use of "stop, question, and frisk" by the New York City Police Department.

This theory can partly define people are herd animal. If we see someone being bullied we bully together so we would not be the victim, if we see everyone wearing weird fashion we would wear weird fashion too. This theory has another side, in Chinese idiom is 喜新厌旧, which means fond of the new and tired of the old.

Do not be guilty if any of the above theory sounds familiar to you, this is human behaviour. Since now you know, it is your self-control to prevent such ugly behaviour from happening.

This is the same reason why the big organisations or countries spend so much effort and resources to fix something people though a trivial matter. Link back up to the butterfly effect, a trivial matter may be escalated because of broken window theory.

Wooden Bucket Effect

In old handicraft water bucket are made of wood because plastic is not available yet and metal is too expensive to forge just for the sake of transporting water.

This require a certain craftsmanship because the joints, the selection of wood and the preservatives used are very dedicate. Whether the wood are at which position, the primary objective is to stay firm and prevent water from leaking. It does not matter whether the wood is on top, bottom, bigger or smaller.

This is how a teamwork should be, if you accepted one team member, you should should not have a second view on him and make the best out of everything.

In the market it is the same, every small detail is as important as the big detail to make it move. Still remember the butterfly effect and the broken window theory? Without one or with an extra one will make a lot of differences.

Pareto Principle

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity states that, for many events, roughly 80% of the effects come from 20% of the causes. Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who, while at the University of Lausanne in 1896, published his first paper "Cours d'économie politique." Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas. 

It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of your clients." Mathematically, the 80–20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.

Instead of an effect or theory, this is more of a calculation to better understand which area to focus. A famous saying - if we fail to measure, we fail to improve.

We should know where to focus to meet the right result. This is why some of us is not being treated like an VIP is most services we dealt with, simply because of the golden rule: we are not the 20% that contributed to their 80% sales.

20% or even lesser population contributes to the 80% of our economy today. Due to the rich-poor gap, it may even be the 10% or 5% population. If 80% or more of the economy is directly influenced by a certain group, priorities and certain perks will be issued to them.

This is fair under economy continuation and progress, however the rich-poor gap will continue to increase in size.

Self-fulfilling Prophecy

A self-fulfilling prophecy is a prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behaviour. Although examples of such prophecies can be found in literature as far back as ancient Greece and ancient India, it is 20th-century sociologist Robert K. Merton who is credited with coining the expression "self-fulfilling prophecy" and formalising its structure and consequences. In his 1948 article Self-Fulfilling Prophecy, Merton defines it in the following terms:

Will the world end in 2020, yes - start making preparation and treat earth badly causing it to really end in 2020, no - start executing go green plans on earth and our living condition improve.

A lot of the effect is directly related to our cause - it is therefore named cause and effect. Without a cause it will not have an effect and everything happen for a reason. There is a theory and logic behind everything.

This theory can be used with butterfly effect because of a misconception that leads to a big result. A lot of weak market sentiments are passed around the aunties in the fish market and it start to spread out causing a weak consumer market that eventually create a reset.
Desperta Ferro!
Very interesting effects, thank you for sharing!
I have a few techniques up my sleeve too: How to make better business decisions through proven techniques
Broken Window Theory sounds like what I do to my car. Once it has a dent, I don't care about that side anymore and continue to make more dents. X_X
(13-10-2016, 06:50 PM)QiGuan Wrote: Broken Window Theory sounds like what I do to my car. Once it has a dent, I don't care about that side anymore and continue to make more dents. X_X

Sorry to hear that. Sometimes when you got a problem with your engine and don't fix it, you might just drive it more recklessly and think since it is already EOL.
Desperta Ferro!

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